Apr 27, 2021
Investing in shares is a powerful and simple way to build wealth and reach financial independence. But to do that, we need to learn how to buy shares.
This guide will show you how to buy shares in Australia for the first time using an online broker. Buying your first shares can be a bit scary, which is exactly why I created this beginners guide.
I break it down step by step (along with screenshots) so you know exactly what to do along the way.
You’ll also learn the important things to do after you’ve bought your first parcel of shares (stuff that other guides ignore).
Okay, let’s get started!
The first step in buying your first shares is opening an online brokerage account – an online platform where we can buy and sell shares. Think of it like a grocery store for shares.
It doesn’t matter all that much which broker we choose, since we can buy the same shares at each place.
Having said that, as a beginner you want a broker which is easy to use. And you definitely want one that charges low fees.
While I’ve tried multiple brokers, in my view, buying shares as a beginner will be easiest with Pearler. Fees are low ($9.50 per transaction), it’s simple to use, and even has the option to completely automate your investing if you like.
For more information about the platform, check out my interview with the co-founder of Pearler. We discuss how and why Pearler is different from other brokers.
The screenshots and instructions below show you how to buy shares using Pearler. But you may wish to use another low cost broker like SelfWealth or CMC Markets.
Don’t worry, the process is similar whichever broker you choose. And if there are any issues, you can always contact customer service.
To open your account, start by signing up here (you’ll get free brokerage on your first investment using that link).
Fill in your email and the other information required to get started. By the way, click any of the images in this guide to expand them.
After that, you’ll get an email giving you access to the platform.
From there, you jump on and finish off the application process, where some ID checks and account verifications are required.
Yes, it’s boring, but it’s super important since we are buying assets here! In comparison to the paperwork associated with buying property, this is a total breeze 😉
Besides, you only have to do it once. After that, you’re up and running as a long term investor!
Shortly after your account is created and details are verified, you’ll be able to transfer money into your new brokerage account to start investing.
In the background, the ASX will issue you a Holder Identification Number (HIN). This is how your ownership of shares is recorded electronically. You’ll get a letter in the mail about this too.
While there’s no minimum required to invest on Pearler’s platform, it’s best if you can invest at least $500 each time because of brokerage. Preferably $1,000 or more.
Here’s why: If you invest $500 and pay $9.50, almost 2% of your purchase went to fees. But if you invest $1,000, less than 1% of purchase went to fees.
To fund your account, on the Pearler Dashboard you simply hit Deposit Cash. Like this…
Then type in how much you want to transfer into your Pearler account.
Your bank account details are confirmed during the signup process, making each investment even easier. (This is partly how Pearler is able to offer Autoinvest… more on that later.)
Within a couple of days, your new account will be fully operational and your transferred funds available in your Pearler account. You’ll get an email when the funds are ready.
Now, I’m sure you already have a rough idea of what you want to invest in. But if you’re not sure where to begin, a simple low cost index fund is a good option to get started.
For example, you can buy the top 300 Aussie stocks in one hit by buying the index fund VAS. Or the biggest 1500 global companies by buying VGS. I own shares in both of these funds.
Here’s how you can get started and find funds like this on the Pearler platform. I’ll take you through an example of how to buy VAS.
Click ‘manually invest’ and you’ll be taken to the Shares screen. On this page you can browse different shares, ETFs and LICs which are popular with other investors on the platform.
Because Pearler’s customers are typically long term investors focused on financial independence, the Popular ETFs category contains mostly low cost diversified funds.
To find VAS and other index funds, click on Popular ETFs. You can also search for a specific fund using the search bar at the top.
On the Popular ETFs page, VAS is one of the first funds that comes up. From here, you can click Buy.
Once you’ve selected which shares you want to invest in, click on the Buy button.
Which takes you to the following screen where you enter the amount you want to invest…
Type in the dollar amount you want to invest, hit Buy, then confirm your purchase. That’s it!
The platform shows you the current market price and how many units you’re able to buy, along with the total estimated cost of your investment. Once confirmed, your order is placed into the market.
By the way, it’s common for cash to be left over after your purchase, since you can only purchase whole shares. That’s okay, just put this money towards your next purchase!
Pearler uses ‘market’ orders to keep things simple (as opposed to ‘limit’ orders). If you invest in shares with plenty of buyers and sellers (index funds, LICs, and decent sized companies), market orders are perfectly fine and your order will be executed at the best possible current price.
That said, it’s best to avoid putting in orders at the very start or end of the day. There tends to be less buyers/sellers at these times and prices can gap up or down a bit.
If you’re using Autoinvest (see Step 9), Pearler places your order at midday to avoid this problem.
When you buy shares, the order is typically filled very quickly. You then receive an email to say your purchase was successful.
Settlement technically takes 2 days, but the shares will show in your brokerage account immediately.
Shortly after purchase, a ‘Contract Note’ is sent to your email (proof you bought the shares). Make sure you keep this and related emails in a special folder.
Congratulations, you’re now an investor! This is a hugely important milestone and something to celebrate.
And this is also where many guides end. But there’s a couple of other important things you’ll want to take care of too.
Each fund or company you invest in use third parties for shareholder administration. These places are called Share Registries.
A week or two after buying your shares, you’ll receive a letter in the mail from one of the share registries.
The letter asks what you’d like to do with your dividends (credit into your bank or reinvest into more shares) and how you’d like to receive dividend statements and any company reports (paper or email).
You can always change these options in the future if you change your mind.
You’ll be asked to log on to their website and confirm your tax file number (which avoids tax being taken out of your dividends). Don’t worry, instructions are on the form, plus a number to ring in case you need help.
Make sure you keep any login info safe for the future, and check your details are correct.
Look, I’ll be honest – this bit is a hassle. But once you’ve set things up, it’s smooth sailing.
As you build your portfolio, you’ll want to keep track of it. Not just out of interest, but because you need to for tax purposes.
Each year you will likely receive dividends from your shares and need to declare this income at tax time. Also, if you sell your shares in the future for a profit, you’ll need to pay capital gains tax (CGT).
For these reasons, it’s important we keep track of our share portfolio. After doing it myself for a short while, I started using Sharesight.
It’s a fantastic portfolio tool, which is completely free if you have 10 holdings or less. Sharesight keeps track of all your dividends and franking credits, and you can run reports at tax time for income and capital gains.
You can learn more about Sharesight and sign up for an account here. For Pearler users, your brokerage account is easy to connect to Sharesight from the Portfolio page. Like this…
Once your account is linked with Sharesight, each transaction is automatically recorded in Sharesight (but it’s worth double-checking for accuracy anyway).
That means even as your portfolio grows and you add other holdings, all your income and capital gains are recorded for tax time with zero effort.
Setting it up this way saves a ton of time and energy trying to do everything manually.
There’s another way to make your investments even easier. That is, to automate your investing. Pearler was created with a feature that nobody else has: Autioinvest.
They’ve made it possible to invest in ETFs, LICs or shares, setting up a direct debit from your bank account.
So if you want to invest $1,000 on the first week of every month, into an index fund like VAS (or any other), you can set this up in your Pearler account to happen automatically!
You can also transfer smaller amounts and have Pearler automatically invest it once you reach a certain amount. And if there are multiple funds you want to invest in, you can setup automatic rebalancing too. (more info on how Autoinvest works here)
To use this feature, click on Autoinvest from the menu, and away you go. It’s pretty straight forward, and looks like this…
Many people like to manually decide where to invest each month. But others want their investing to be as easy and effortless as possible (and why not?).
Using Autoinvest, you set it up once and that’s it. You’ll be saving and investing each month without lifting a finger. No need to transfer money, put in orders, or even look at the market.
If that sounds good to you, check out Autoinvest. So passive a sloth could invest in shares!
Below are some of the most common beginner questions I get from readers.
If you haven’t already, make sure you check out my Getting Started page. There you’ll find a ton of helpful content on saving and investing, downloadable guides, and more FAQs.
CHESS stands for Clearing House Electronic Subregister System. This is the system used for settling trades made through the Aussie stock exchange (ASX).
When you open a brokerage account, you’ll get a Holder Identification Number (HIN), which ensures all holdings are recorded correctly on the CHESS system.
Each time you buy (or sell) shares, you’ll receive a statement in the mail like this to confirm the changes (paper, I know!).
If your broker is ‘CHESS Sponsored’ like those mentioned in this article, it means the ASX has a full electronic record and you own the shares.
Some brokers do it differently and they actually hold the shares on your behalf. So if something goes wrong with the broker, it’s less clear what happens to your shares. More info here.
Whenever you can afford to! Aim to save up a lump of $1,000 or more each time, then get that money invested.
I think the sweet spot for investing is once per month. It keeps you motivated and engaged, while building momentum and constant progress towards your goals.
Fees are deducted from the value of the fund automatically in tiny amounts on a regular basis. So there’s absolutely nothing to do – you won’t get a bill in the mail.
No, not all shares pay dividends. But most diversified funds do pay dividends. Index funds usually pay dividends every 3 months. LICs generally pay dividends every 6 months.
But the amount and timing will depend on the specific shares you’ve invested in. Check the company or fund’s website for more info.
Franking credits are tax credits investors receive on dividends paid by Aussie companies.
If the company has paid tax, when it pays you a dividend, it will often come with franking credits attached.
At tax time, this reduces the amount of tax payable on your dividends and may even result in a refund, depending on your tax rate. Only Australian companies which pay tax in Australia can pass on franking credits to shareholders.
Yes, absolutely. Reinvesting your dividends into more shares helps keep your money working hard and builds your passive income snowball. You can do this in two ways…
Reinvest into shares of the same company, via a Dividend Reinvestment Plan (DRP). Or take the cash and reinvest at your own leisure into the same or another company.
Both options are great. DRPs can result in lots of tiny purchases, which can create a small tax headache later if you choose to sell. But if you’re using Sharesight, these can be recorded automatically, avoiding any headache.
I hope this guide has helped you learn how to buy shares as a beginner in a way that’s simple and easy to follow.
If there is something you need further help with, feel free to email me – firstname.lastname@example.org – and I’ll do my best to assist.
If you get stuck during the signup process, simply reach out to your broker’s customer service (for Pearler customers, you can contact them using the chat-bot or email at email@example.com)
I wish you all the best on your investing journey!